‘Click Fraud’ Case Tests Faith of Advertisers

John Thys still hasn’t figured out how much his company has paid Google Inc. for bogus sales referrals caused by “click fraud” -- a sham aimed at a perceived weakness in the Internet search leader’s lucrative advertising network.

But Thys says he has uncovered enough of it to conclude that Google is trying to shortchange his company and thousands of other advertisers by offering a total of $60 million in refunds to settle a lawsuit.

“It’s almost like an insult that they expect us to take this token money,” said Thys, director of Internet marketing for Radiator.com of Benicia, Calif.

Google also expects to pay $30 million to the lawyers who represent advertisers, raising the settlement’s total value to as high as $90 million. Still, that’s a fraction of the more than $10 billion in cash held by the Mountain View, Calif.-based search company.

An Arkansas judge is expected to consider the proposed class-action settlement in late July.

The refunds, in the form of advertising credits, are meant to compensate Google’s customers for undetected click fraud, which contributed to the $13.3 billion in ad revenue that has poured into the company since 2001.

Google’s offer works out to a $4.50 refund on every $1,000 spent in its vast advertising network over the last 4 1/4 years.

Independent studies assert that $100 to $400 of every $1,000 billed to advertisers stems from click fraud.

If those estimates prove correct, Google could be on the hook for $1 billion to $5 billion in advertising refunds.

Click fraud takes different forms, but the end result is usually the same: Merchants are billed for fruitless traffic generated by scam artists and mischief makers who repeatedly click on an advertiser’s Web link with no intention of buying.

Based on a monthlong analysis of the traffic that Google ads referred to Radiator.com, Thys suspects click fraud may have accounted for 35% of the website’s $20,000 ad bill.

After reviewing Thys’ evidence, Google said its internal safeguards had spotted the suspicious activity as it occurred and that it never billed Radiator.com for fraudulent clicks. But Thys said Google didn’t provide him with data to back up its findings in an e-mail signed simply by “Ray” from Google’s click quality team.

Google maintains that its class-action settlement represents a fair offer that underscores how well it has shielded advertisers from the costs of click fraud.

The class-action settlement of the Arkansas lawsuit is likely to test advertisers’ faith in Google. The company is supposed to send out notices of the settlement this month, giving advertisers until late June to reject or protest the refund offer. Radiator.com has decided to reject it.

If the entire deal is rejected, lawyers then go back to the negotiating table; individual advertisers can also declare they won’t participate and then will be free to file their own lawsuits or to join a separate suit pending in California.

Miller County Circuit Court Judge Joe Griffin is scheduled to decide whether to approve the settlement in a two-day hearing beginning July 24.

Yahoo Inc., owner of the Internet’s second-largest advertising network, continues to fight similar click-fraud allegations in the same Arkansas court as well as a federal court in California. A click-fraud lawsuit filed against Google in federal court in California has been suspended while its Arkansas settlement is reviewed.

The Google settlement, announced in early March, has focused more attention on click fraud.

The shady activity produces revenue for Google, Yahoo and a long list of websites that display the ads, because the clicks trigger sales commissions even if a referral doesn’t produce a sale.

Suspected motives vary. Sometimes Web merchants try to deplete a rival’s advertising budget. In other instances, the owners of small websites participating in the marketing networks run by Google and Yahoo are believed to click on ads to generate commissions for themselves.

Complicating the click-fraud issue even further, search-engine advertising isn’t subjected to independent auditing as is advertising in newspapers, magazines and broadcast media.

In search advertising, website owners sign contracts obligating them to pay for all valid clicks -- but the search engine has discretion over what is valid.